Brazil Markets Sink, Triggering Circuit Breaker on Fresh Crisis

Brazilian markets plunged as a fresh political crisis ensnared President Michel Temer and threatened to derail a reform agenda that had helped restore confidence in the South American nation.

Futures of the benchmark Ibovespa gauge plunged 10 percent, and futures of the real hit circuit-breaker limits after sinking 6 percent. Bond risk measured by five-year credit default swaps soared more than 60 basis points, the most since January.

The declines drove up the yield on the country’s 1 billion euros ($1.1 billion) of bonds due 2021 by the most since they began trading three years ago. Shares of state-controlled oil producer Petroleo Brasileiro SA traded in Frankfurt sank the most since 2008, while Asian exchange-traded funds with Brazil exposure slumped overnight. The extra yield investors demand to hold the nation’s debt instead of U.S. Treasuries jumped the most since September 2015.

One of the country’s largest newspapers reported on Wednesday evening that a secret recording exists of Temer approving a payment to Eduardo Cunha, the mastermind behind last year’s impeachment of former President Dilma Rousseff. The tape was submitted to the Supreme Court by two senior executives from meat-packing giant JBS SA as part of a plea bargain deal, according to O Globo newspaper, in which information is offered in exchange for reduced sentences. The paper provided neither a transcript nor a recording.

The presidential press office denied the allegations.

The Peso Gets Real In Asian Trading

Brazilian assets have rallied for the past year as Temer implemented reforms designed to pull the country out of recession and close a budget deficit.

Investors in Asia hours sold off Brazilian equity holdings through their ETFs. Japan’s Next Funds Ibovespa Linked ETF retreated as much as 9.6 percent for its worst loss since November, while the DB X-Trackers MSCI Brazil Index ETF fell the most since December.

The scandal adds to a turbulent 24 hours in global markets, with volatility returning on reports Trump had asked then-FBI Director James Comey to drop an investigation into former national security adviser Michael Flynn in February, before firing him last week.

Bloomberg

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.